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TiVo in New Partnership Deal

TiVo Inc. (TIVO) recently announced a partnership with Alaska-based cable operator General Communications Inc. (GNCMA). Under the terms of the agreement, General Communications will use TiVo’s solutions to power its next generation home television offerings.

General Communications home television offering will include TiVo’s four-tuner Digital-video-recorder (DVR) Premiere Q, TiVo Mini IP set-top boxes and TiVo stream. Going forward, General Communications will integrate TiVo’s technology along with Pace’s XG1 gateway that includes DOCSIS and transcoding features.

The deployment is scheduled to start by the end of this year and the integrated platform will be available to General Communications subscribers at the start of 2013. Post rollout, General Communications expects to offer linear cable television services that will be integrated with on-demand and broadband video content through the TiVo interface.

TiVo has been focusing on partnerships and strategic alliances to drive subscriber growth. TiVo has a number of partnerships with major companies including Comcast Corp. (CMCSA), Charter Communications, RCN, and Suddenlink. TiVo also expanded its services globally through partnerships with ONO, Virgin Media Inc. (VMED) and Canal Digital (in Scandinavia).

In the first half of 2012, TiVo entered into a partnership with Pace, a leading developer of technologies and services for the broadcast and broadband industries. TiVo also signed an agreement with Sweden’s largest cable operator Com Hem. Furthermore, TiVo extended its partnership with Ono, Spain’s largest cable operator.

Although General Communications has a much smaller subscriber base compared to these large cable operators, we believe its dominating position in Alaska will boost TiVo’s market share going forward. We believe that TiVo will continue to pursue opportunities for developing strategic partnerships with cable operators both in the domestic as well as international markets in order to boost its subscriber base going forward.

We believe that these partnerships will also help in reducing competition over the long term. However, pending patent litigation issues, rising subscription acquisition costs and higher research and development (R&D) expenses are expected to impact TiVo’s profitability over the next few quarters.

Thus, we have a Neutral recommendation on TiVo over the long term (6-12 months). Currently, TiVo has a Zacks #3 Rank, which implies a Hold rating for the short term (1-3 months).